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Index of Postal Freedom
Japan
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Overview
Japan Post Holdings Co. is comprised of four major entities: postal operator Japan Post Service, post office operator Japan Post Network, life insurer Japan Post Insurance, and financial institution Japan Post Bank. This unique structure was created in a landmark, 10-year privatization scheme on October 1, 2007.
These entities are all enormous. For instance, Japan Post Insurance employs 5,200 workers and is the nation's primary provider of life insurance policies. It sold nearly 600,000 policies during the first six months of privatization (to March 2008).
Japan Post Bank, with 233 branches, 11,200 employees, and agents in 24,540 post offices, holds deposits totaling over ¥182 trillion and net assets of ¥8.1 trillion. The Bank netted ¥152.1 billion in the six-month fiscal period for 2007, which ended on March 31, 2008.
Japan Post Service's 99,700 employees distribute 69 million pieces of mail per day to 30 million locations. It delivered 12.5 billion pieces of mail in the six months ending March 2008 and earned a net profit of ¥69.4 billion. Rates for regular letters are ¥80 for letters up to 25 grams, and ¥90 for letters up to 50 grams.
Japan Post Network earned an additional ¥4.6 billion through its network of post offices. It employs over 116,000 people. Japan receives the second-highest volume of mail in the world, trailing just the United States.
All told, the net income for the entire Japan Post group was ¥277 billion.
Ordinary Japanese households, who tend to shun "riskier" financial markets, have long kept their savings in low-interest accounts with Japan Post.
With such financial heft, the highly publicized privatization scheme has been full of stops and starts. In fact, calling Japan Post private is inaccurate, as the state retains full ownership of the holding company. Privatization of this web of postal services and restructuring the interdependent and Byzantine bureaucracy has been even more complicated and politically charged than postal liberalization initiatives in other countries.
According to one critical analysis of Japan's privatization to date:
The postal successors to Japan Post, Postal Delivery Corporation, and to a lesser degree Post Office Corporation, are not truly commercial entities operating separate from government. The vast assets of the postal banking and insurance companies are not effectively separated from the operation of the national post office; indeed, they are so intertwined that the feasibility of the privatization process is uncertain.
The process of moving the enormous asset base of Japan Post into the private sector has begun, but the various entities that make up Japan Post continue to enjoy vast advantages afforded by their government status. And with regard to conventional mail service, it's safe to say that Japan Post faces very little, if any, competition in spite of successful privatization initiatives.
Liberalization and Privatization
Japanese economic planners have long recognized that transforming the postal service is a key objective in making Japan's financial markets more efficient. The country's economy has struggled through four recessions since 1991, and policymakers admit that interlocked and inefficient capital allocation is inhibiting growth.
Moreover, as retirement funding emerges as a dominant issue with Japan's aging population, simple "postal reform" tears deep into the fabric of Japanese society. In 2005, more than 85 percent of Japanese households had postal service accounts and some 60 percent had insurance policies with Japan Post. Political and cultural opposition is strong, and there continue to be innumerable temptations to undermine real reform as politicians respond to powerful interest groups.
Prime Minister Junichiro Koizumi staked his political legacy on privatization of Japan Post with nationwide snap elections he called in 2005. Despite passionate opposition, Koizumi won enough support to move ahead with his long-term plan to privatize the behemoth.
In January of 2006, the government mandated the establishment of a holding corporation -- Japan Postal Services Corporation (JPSC) -- whose stock is to be entirely owned by the government. JPSC in turn is structured to own the stock of four subsidiary operating corporations created as Japan Post is split up. JPSC now identifies itself as Japan Post Holdings Co., Ltd.
The four subsidiaries are Japan Post Network (the retail post office operator), Japan Post Service (the mail delivery arm), Japan Post Bank, and Japan Post Insurance. The Post office operator serves as the retail arm for the other three units.
This four-part structure formally came into being on October 1, 2007.
The Bank and the Insurance arms are slated to be the first entities to transfer to ownership by private shareholders, perhaps by 2010. The state-owned holding company is then expected to relinquish all shares in them by 2017.
Japan Post Network and Japan Post Service will continue to be completely controlled by the holding company. They will not be privatized themselves, but the government plans to relinquish two thirds of its interest in the parent holding company by 2017.
The regulatory future of the delivery entity is not clearly spelled out. A 2004 Cabinet decision left Japan's politically appointed Minister of Internal Affairs and Communications (MIC) with virtually complete authority in mail matters -- approving all changes in postage rates and supervising postal operations and standards. The Cabinet ruling also continued universal postal service, and stated that the postal monopoly would not be abolished "for the time being." In effect, the government continues to set the prices and make the rules.
Some efforts to privatize the holdings of Japan Post Group have met with resistance. A plan to sell an unprofitable string of hotels owned by the holding company was scuttled in February 2009, after the MIC called into question the deal's transparency and sale price.
Also resisting the privatization are Japan's postal labor unions, two of which merged in response to the announced plan. Previously rivals, the unions formed the Japan Post Group Union in October 2007; the syndicate now has 225,000 members.
The privatization of Japan Post is still at the mercy of the government. A bill that would halt the process was defeated in the lower house of the Japanese Diet in late 2008, after passing in the upper house. There is still significant political will against further privatization. Despite Koizumi's past successes, this issue remains at the forefront of Japanese politics.
In early 2009, Prime Minister Taro Aso faced pressure to resign after he announced that he was rethinking the break-up of Japan Post. His approval ratings slid to under 10 percent.
Regulation and Control
Japan Post and its emerging subsidiaries continue to report to and be supervised by the Japanese government.
As some aspects of the old postal service are "liberated," the MIC has acquired additional authority. MIC now must approve all Japan Post Service subcontracts and controls the Service's entry into non-traditional businesses. It enforces legislative compliance and has broad powers of audit and inspection.
As a result, anything resembling investor-responsible commercialization of postal delivery activity has lagged. In fact, there seems to be reluctance on the part of Japanese investors to approach companies which they are not in a position to control.
Thus, the spin-offs of Japan Post are government-owned corporations. They report directly to the government and retain government guarantees and special rights.
Incremental steps have been taken to relax government control. The deposits of Japan Post Bank are no longer fully guaranteed by the government. Like other private banks, they are now insured by the Deposit Insurance Corp. of Japan up to ¥10 million. The Bank and Insurance companies are now seeking an end to restrictions on deposit limits and insurance benefits.
Oversight, Investors, and Consumer Rights
The basic Postal Privatization Law provides very little in the way of independent, outside review of the allocation of assets in the breakup or ongoing review of operations or the probity of management. Short of market valuations, which have so far hardly entered the picture, guidelines on how the privatization of Japan Post is to move forward are incomplete and vague.
Moreover, if privatization means -- as it does in other countries -- that the spin-offs from Japan Post are to have the same freedom to manage their own activities as private businesses and compete "on equal footing," then even the basic legal platform has so far not been envisioned, much less spelled out.
Moreover, even within the government itself, there is no single source that circumscribes the authority of the Minister of the Interior and Communications in this matter.
Outside bodies that might insure compliance with private, as opposed to government obligations, are few in Japan. The Japanese Fair Trade Commission may widen its role, but its powers do not match the powers given to outside postal regulators in other countries going through this process.
Competition & Universal Service
There seems to as yet be no plan in place to phase out the postal monopoly. Universal service is recognized in Japan to comprise 6-day delivery of mail of up to 4 kilograms.
Although new regulations "allow" competition in national service for ordinary mail, entry restrictions are written so that no private business can meet the requirements.
Japan Post is in the process of modernizing its traditional mail operations. It has taken steps to form business alliances with both Japanese and European firms to gain a foothold in the high-margin package delivery market. Almost immediately after restructuring in October 2007, Japan Post forged a domestic partnership with Nippon Express, a prominent Japanese parcel delivery firm. The companies expected to be fully merged by April 2009, but Internal Affairs Minister Kunio Hatoyama expressed opposition to the planned merger. It has been delayed until at least October 2009. The merged company would be the third-largest parcel delivery service by volume in Japan, with roughly 19 percent of the market. Major competitors are Yamato Transport with 38.2 percent market share as of 2008, and Sagawa Express with 33.4 percent market share.
Non-Postal Activities
Japan Post has introduced electronic bill-paying and also begun to offer its customers the option of moving savings into a range of investments -- including stock market investment trusts managed by private financial firms. Japan Post has also formed an advertising company to take advantage of unused space inside and outside of post offices. As of 2008, Japan Post Bank offered JP-brand credit cards. Similarly, Japan Post Insurance has begun offering hospitalization and surgery insurance.
Useful Links
Japan Post Holdings Website
Wharton School Paper on Japan Post's Privatization
Japan Times Q & A on Japan Post's Privatization
Japan's Ministry of Information and Communications - Postal Service Policy Planning Bureau
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